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Internal Limited Liability Company (LLC) Disputes: Direct or Derivative Claim?

As a member of a Limited Liability Company (LLC), you may find yourself in a position in which you believe legal action must be taken to prevent or remedy wrongdoing. If so, you may be entitled to file a direct claim or a derivative claim. If you file a derivative claim, you must first make a formal demand unless the exception to the demand requirement is applicable.

Direct vs. Derivative Claims

A direct claim is a claim based on a member’s right of action against another member. As such, a direct claim is made directly on behalf of the member or manager of the limited liability company against another member or manager of the limited liability company. For example, if a member was singled out and not allowed to vote on a particular company action, that harm might form the basis of a direct claim.

A derivative claim is based on a wrong that impacts the company itself. A derivative claim, therefore, stems from the company’s right of action not an individual member’s right of action. In a derivative lawsuit, a member seeks to enforce a right or to prevent/remedy a wrong to the company when the company has failed or refused to do so itself. Misappropriation of the limited liability company’s assets, for instance, might give rise to a derivative action. Although that misappropriation may indirectly harm the members of the LLC, the primary harm is to the LLC itself.

Derivative Claims and the Demand Requirement

If you are entitled to bring a derivative claim you need to first make a demand unless the exception to the demand requirement applies.  In the State of Florida, LLC derivative claims are governed by Fla. Stat. § 605.0802 which allows a member to pursue a derivative action to enforce a right of a limited liability company “if the member first makes a demand to the other members (in a member-managed limited liability company) or a manager (in a manager-managed limited liability company) requesting that either the members or managers cause the company to take suitable action to enforce the right and then the members or other managers do not take the action within a reasonable time, not to exceed 90 days.”

The only exception to the demand requirement under Florida law is found in subsection (2) of the statute which allows a derivative action to proceed without first making a demand “if a demand (as described above) would be futile or irreparable injury would result to the company by waiting for the other members or managers to take action to enforce the right.”

Contact the Tampa Bay Business Attorneys at Lieser Skaff

If you are a member of an LLC and believe you are entitled to file an action against a limited liability company, consult with an experienced business law attorney first to determine what type of action to bring and whether the pre-suit demand requirement applies.

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